Consumer sentiment has shown signs of improvement rising 4.7 per cent in June to 102.2 from 97.6 in May.
The Westpac Melbourne Institute Index of Consumer Sentiment showed signs of recovery from some lost ground in June.
â€œThe 4.7 per cent rise takes the level of the index back over the 100 level indicating that optimists now outnumber pessimists again although the margin is slim. Consumer confidence remains 8.2 per cent lower than its peak early in the year,â€ Westpac senior economist Matthew Hassan, said.
â€œIt appears that some of the factors behind the sharp drop in sentiment in May were temporary. In particular, concerns stemming from the Federal Budget may have eased somewhat in June. However, a deterioration in consumer sentiment around prospects for the Australian economy, which has been a key underlying theme over the last three months, remains apparent. These fears would have been underscored by the weak Q1 national accounts data, a sharp sell-off in the share market (down 7 per cent between the May and June surveys) and a slide in the Australian dollar (down 4Â¢ vs the US dollar between the two surveys).â€
All components of the Consumer Sentiment Index recorded some improvement between May and June. The strongest gains were around family finances: the sub-index tracking assessments of â€˜family finances vs a year agoâ€™ rose 8.5 per cent, more than reversing the 8 per cent drop in May; the sub-index tracking expectations for â€˜family finances over the next 12mthsâ€™ rose 5.3 per centâ€™. Both of these sub-indexes remain below their long run average levels.
The most positive aspect of the survey continues to be around views on â€˜time to buyâ€™. The sub-index tracking views on “whether now is a good time to buy a major household item” posted a modest 3.7 per cent gain in the June month but is the only sub-index at high overall levels above historical averages. Separate indexes tracking views on â€˜time to buy a dwellingâ€™ and â€˜time to buy a carâ€™ are even stronger with both largely unchanged at highs 20pts and 16pts above their respective long term historical averages.
â€œClearly consumers see this as an opportune time to make major purchases or enter the housing market, likely reflecting the low cost of finance and comparatively good affordability. However concerns about the economic outlook are likely discouraging many buyers from going ahead with actual purchase decisions,â€ Hassan said.
â€œThere are also signs that households may be becoming less risk averse with a notable shift in their views on the â€˜wisest place for savingsâ€™. In March, 41.3 per cent of respondents favoured bank deposits or other fixed interest investments with a further 18% nominating â€˜pay down debtâ€™. Those proportions declined to 40.7 per cent and 15.7 per cent in June.â€
According to Hassan, the improvement in the June consumer sentiment will be viewed with some relief. However, the case for lower interest rates over the medium term remains clear.
â€œThe soft Q1 GDP result and the weakness in domestic demand are of particular concern. The statement accompanying the RBAâ€™s June decision to leave rates on hold sounded less certain on the degree to which the inflation outlook provided scope for policy to move further if demand required more support,â€ he said.
â€œAs such we expect the Bank to seek more clarity on inflation and await the June quarter CPI update due on July 24 before moving again. The weak Q1 demand picture means the July meeting is â€˜liveâ€™ but on balance we expect the next rate cut to be in August with a 25bp reduction.â€